Economy is finally back, but where's the joy?

They call economics the “dismal science,” and a recent midyear forecast provides a good example.

“We’re experiencing an economy that remains in expansion mode but that has some fairly serious workforce and housing imbalances which are a drag on California’s long term economic growth and health,” said Robert Kleinhenz, executive director of research at Beacon Economics, based in Los Angeles.

Kleinhenz is not alone in his pessimism, which goes well beyond the kind of nervousness you always hear when economic recoveries get long in the tooth. Rising housing costs are sapping consumer spending, while companies struggle to find qualified recruits as plentiful openings fail to tempt near-record levels of idle, working-age people back into jobs.

By all rights, consumers and companies should be celebrating one of the longest expansions on record. California has surpassed the rest of the nation by some measures, and San Diego County looks stronger than much of the state. Yet happy days don’t seem to be here again.

The root cause is a shortage of new housing. This requires a political solution, because the shortage owes to decades of gradually increasing government restrictions on new construction, especially in coastal cities. And, because “not in my backyard” is so popular, this problem isn’t going away anytime soon.

In the meantime, jobs and incomes just aren’t growing fast enough to keep up with rising rents and home prices. Money may not buy happiness, but its outflow can breed enough unhappiness to stress an economy.

Indeed, rents seem to be chasing out many of the working-class people the landed gentry need to build stuff.

“The high cost of housing will likely cause, for the third year in a row, 14,000 more San Diegans to leave the county for other parts of the state and nation than to come here,” said Lynn Reaser, chief economist of Fermanian Business & Economic Institute at Point Loma Nazarene University in San Diego.

This net exodus suggests that demand is driven by internal population growth (more births than deaths), and by out-of-town investors who bid up housing prices.

Here’s what the economists mean by high cost: Home prices are up nearly 60 percent since 2012, reckons the S&P/Case-Shiller index for San Diego County, and heading toward the inflation-adjusted peak of the bubble era. The average rent is up 28 percent — nearly $400 a month — over roughly the same five years, according to data compiled by MarketPointe Realty Advisors.

It’s worth remembering that landlords and homeowners are better off when values rise quickly. In previous economic cycles, this created a “wealth effect” that stoked consumer spending and business investment.

The effect is largely absent this time, for reasons that aren’t entirely clear. Construction is well off previous highs, even in areas of the nation where the building is easy.

In San Diego, low ownership rates may play a role, because we have a higher percentage of renters than many metro areas.

And the Panic of 2008 seems to have taught Americans that frugality is the prudent response to stagnant wages and rising debt. This is a big change from the roaring 2000s, when families and companies simply borrowed to buy stuff that, at least in hindsight, they clearly couldn’t afford.

For the record, Beacon Economics is forecasting growth for the next year, albeit at a slower pace. So is Reaser, who pays attention specifically to San Diego.

“While major metro areas across California have seen similar deceleration in job gains, San Diego County is now outpacing many other Southern California metros in terms of job creation,” Kleinhenz wrote last week, forecasting that local employers will create 1.8 percent more jobs than they eliminate over the next year.

Both economists expect rising rents and home prices to continue to fuel construction, despite reports of shortages of workers with key skills. Still, nobody expects the level of activity to reach previous peaks, given the difficulty of getting permits.

And immigrants, a key part of the construction workforce during previous housing booms, seem unlikely to return anytime soon.

“Many of those people went home, wherever home was, and they haven’t come back,” Kleinhenz said.

Other parts of the local economy face fewer obstacles. Last year, a 37.2 percent increase in spending by business and industry made up for lackluster consumer purchasing, driving taxable sales at local businesses up 3.1 percent to $55.9 billion, Beacon reported.

And tourism was on a roll, with international travel up 7.8 percent in 2016 and domestic rising by 3 percent. Hotel operators reported higher occupancy, even though developers added more rooms, pushing the average room rate slightly higher, to $182.5 per night.

“San Diego tourism should be strong (this year) due to relatively low gas prices, low unemployment and higher profits, which will boost both leisure and business travel,” Reaser said.

Other brights spots for hiring include government, health and education, while business and professional services seem to have tailed off in recent months.

Even though some of our economic threats are made in California, others are common to the rest of the nation.

Values of financial assets like stocks and bonds are well above historic averages, raising the odds of a sudden downturn to rattle consumers and undermine business investment.

As for debt, big banks are in better shape than a decade ago. But that’s partly because the riskiest bets have moved to unregulated corners of the global financial system.

Consumers are better off, yet the blessing is mixed. Sure, debt payments are still below previous peaks as a percentage of disposable income. Yet most of that relief came the bad way, as families shed mortgage debt through foreclosures and distressed sales during the housing-market cataclysm.

Meanwhile, bubbles may be forming in the auto lending markets. A local dealer recently told me, with astonishment, about a 20-year-old customer who worked in garbage collection and successfully financed his used sports car with payments of $600 a month over 72 months.

Such sales are made possible by essentially the same financial tactics that inflated the housing bubble. Federal data suggests that securitized motor vehicle loans in the U.S. hit $1.2 trillion in the first quarter of this year, soaring past historic highs.

It’s entirely possible that these and other “imbalances” will resolve gradually and without much economic damage to ordinary families in San Diego. We should hope so, because we have enough problems lurking in the local housing and labor markets, with no easy solutions in sight.